Financial wellness is a state of financial well-being in which you can manage your bills and expenses, pay your debts, weather unexpected financial emergencies and plan for long-term financial goals such as building college funds and saving for retirement.

The U.S. Consumer Financial Protection Bureau defines financial wellness — also known as financial well-being — as “the feeling of having financial security and financial freedom of choice, in the present and when considering the future.”

Your overall wellness depends on several factors including mental, physical and financial health.

Financial wellness is important because it improves your overall health and well-being. It allows you to reduce financial-related stress now and for the future.

The principles of financial wellness consist of overlapping areas of your personal finances. While these can affect one another, you can achieve greater results by bringing each under control.

4 Principles of Financial Wellness

1. Budgeting

Creating and sticking to a budget lays a foundation to build your financial well-being. It provides a roadmap to manage day-to-day finances, prepare for financial emergencies and plan for your future.

2. Debt

Managing long-term debt — and eliminating consumer debt — can reduce barriers to saving, investing and long-term financial planning. Knowing how to carefully manage credit can also build your credit score — giving you access to better borrowing rates for mortgages, auto loans and other large purchases.

3. Savings and Investments

Long-term savings and investments can provide financial security and peace of mind for retirement planning. Short-term savings can leave you with cash on hand to cover home repairs, vacations or other planned expenses without having to increase your debt.

4. Protection and Insurance

Insurance or emergency funds can protect you financially from unexpected emergencies. Insurance can cover losses due to fires, floods or health emergencies. An emergency fund, on the other hand, covers other crises. Both can help prevent you from using long-term savings or going into debt.